BANKING ANALYTICS

Ranking of the Azerbaijani banking sector (ranking includes the information component of the banking sector, the main events of the world economy, the analytical review of the main indices of the banks which are being ranked)

Moody’s: Azerbaijani economy to grow 1.8% in 2018

The Moody’s Investors Service international ratings agency has forecasted the Azerbaijani economy to grow 1.8 percent in 2018, Petr Paklin, the agency analyst, said at the Moody's Annual Azerbaijan Summit in Baku May 25.

He noted that Azerbaijan’s GDP growth is highly dependent on the level of oil prices.

If the oil prices remain at the level of above $50 per barrel, Azerbaijan will abandon its savings policy and increase the government investments, Paklin said.

He said that Azerbaijan still retains a number of positive factors influencing the assessment by Moody’s.

First of all, Azerbaijan has big oil and gas reserves, significant volumes of foreign assets, as well as foreign exchange and gold reserves in the country’s State Oil Fund (SOFAZ) and the Central Bank (CBA), he noted.

Besides, Azerbaijan has an acceptable level of debt burden, despite its growth in the last two years, he added.

Paklin also noted that the increase of Azerbaijan’s debt burden is associated with high costs for supporting the banking sector, in particular, the International Bank of Azerbaijan.

If at the end of 2014, the level of Azerbaijan’s national debt was 11 percent of GDP, this figure reached 40 percent of GDP by the end of 2016, Paklin said.

He added that such growth of the debt is due to sharp drop of oil prices and the need to support the banking sector.

Although the size of Azerbaijan’s banking sector is small (slightly more than 50 percent of GDP), the state’s expenditures to support this sector are very high, the analyst said, adding that according to Moody’s estimates, in 2015-2016, Azerbaijan allocated funds equivalent to its national debt’s level of 18 percent of GDP for the banking sector’s support.

At the same time, Azerbaijan can afford such a debt level, he noted.

Azerbaijan’s foreign exchange reserves are about 100 percent of the country’s GDP, which exceeds the level of the country’s national debt by slightly more than twice, Paklin said, adding that this is a very impressive debt safety cushion that will help overcome stress.